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On July 1, 2015, the Bank of England published a Policy Statement on the Financial Policy Committee’s powers over leverage ratio tools. The BoE was given powers of direction over leverage ratio requirements and buffers for banks, building societies and PRA-regulated investment firms in April this year. The FPC intends to direct the PRA to apply: (i) a minimum leverage requirement immediately to UK Global Systemically Important Banks and other major domestic UK banks and building societies, and from 2018 (subject to a review in 2017) to all banks, building societies and PRA-regulated investment firms; (ii) a supplementary leverage ratio buffer of 35% of corresponding risk-weighted systemic buffer rates to UK G-SIBs, phased in from 2016, and to domestically systemically important banks, building societies and PRA-regulated investment firms from 2019; and (iii) a countercyclical leverage ratio buffer of 35% of a firm’s institution-specific countercyclical capital buffer rate which will apply immediately to UK G-SIBs and other major domestic UK banks and building societies and from 2018 (subject to a review in 2017) to all banks, building societies and PRA-regulated investment firms, including any ring-fenced banks, large building societies and any other banks that become subject to a systemic risk-weighted capital buffer. The FPC cannot direct the means by which or the time within which the PRA must implement a direction but the PRA is now expected to take the proposals forwards. The implementation of the UK leverage ratio framework for G-SIBs and other major domestic UK banks and building societies is ahead of the internationally agreed standards which are expected to introduce a minimum leverage ratio requirement by January 1, 2018. A consultation paper on implementation of the FPC’s direction is due to be published on July 10, 2015.

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